As a millennial, you’re probably not thinking too much about financial planning. You aren’t ready for retirement yet, but in about 10 to 20 years you’ll be thinking more and more about a nest egg and how you’ll spend your golden years.
In today’s blog, we talk about eight tips for financial planning for millennials.
1. Stick to Your Budget
You already know how to set a budget. But can you stick to that budget? Staying within your budget represents a major key to helping you save money for the future, whether you need more money for your child’s college education or you begin the journey for retirement. Staying within your budget can mean cutting back on expenses, saving more, or living slightly beneath your means until you achieve a better financial standing.
2. Cut Costs Where You Can
Stop living paycheck to paycheck. Once you cut costs, you can transfer that to savings for an emergency fund. For example, make coffee at home and take it with you to work rather than stop off at your local coffeehouse on the way to the office. Eat at home rather than eating out. Update your current technology instead of buying the latest, top-of-the-line cellphone. Reduce seasonal swings in utility bills by wearing more clothes in the winter or fewer clothes in the summer.
Over time, your savings will grow and accrue more interest.
3. Create an Emergency Fund
Set aside anywhere from three to six months of pay as an emergency fund. Put this in a high-yield savings account, so it gains more interest over time. Yes, you may have to pay the penalty for an early withdrawal. But if you can keep that fund above the minimum for a long time, it earns more interest than an ordinary savings account.
4. Utilize Retirement Accounts to Their Fullest Potential
The IRS sets annual limits on how much money you can put into tax-free retirement accounts every year. The idea is that you put money into these accounts, and you don’t pay taxes on those investments until you retire. Even better, your employer can add to your retirement savings by matching your contributions up to a specified limit. It’s like free money for your retirement when an employer also contributes to the fund. Your employer also realizes tax benefits for making contributions.
The sooner you start saving money into retirement accounts, the more interest the account accrues before you retire.
5. Take Advantage of Tax Breaks
Millennials with children and families can recognize tax breaks and benefits.
Keep records for:
- Daycare and childcare expenses.
- Education expenses for dependents, including tuition.
- Healthcare expenses.
- Mortgage interest on your home.
- Student loans.
These items can help you reduce your tax bill or increase your refund.
6. Pay Off Your Credit Card’s Entire Balance
Paying interest on credit cards does not offer any tax advantages. Only mortgage interest does. Owning a credit card is one of the ways to begin building credit history. But interest can accumulate quickly if you don’t pay off the balance every month. There are other ways to build a credit history, such as financing a car, making your utility payments on time, and paying your rent on time. Another good strategy is to apply for loans through your bank because your bank can already see your financial health and history through your account usage.
7. Diversify Your Investments
Savings accounts are great for long-term investments. But there are other ways to realize dividends over time, even in the short term. Mutual funds from reputable financial investment companies offer historical yield data from their funds. The trick is to stay with a mutual fund for several years. Money market funds offer short-term rewards, but those types of investments carry greater risks. Mutual funds mitigate risks by showing the long-term rise of the stock market. Younger investors have more time to recover from a drop in the market.
8. Invest in Life Insurance
Take care of your family first. Even with a robust savings plan, you need life insurance for when your family needs an extra boost of income, whether you’re 30 or 70. Proceeds from life insurance can go towards whatever your heirs see fit. Find a life insurance policy that fits your needs.
9. Bonus Tip: Work With a Financial Planner
The experienced team at The Whitlock Co. offers financial planning services for high net worth individuals and business owners. Contact us to request a consultation, and we’ll start the conversation.